McDonalds’ Switch to Paper Cups Source of New Demand for International Paper

The polystyrene cups that your coffee has been served in at McDonalds for years will soon be a thing of the past. McDonalds announced in September 2013 that it will begin switching over all of its United States stores to using paper coffee cups..

The paper industry is seeing new demand from consumers taste for recycled or recyclable packaging and an increase in shipments from online retailers. This is a rebound from a tough last few years for the United States paper industry as people adopted e-mail over mail and newspaper and magazine sales declined.

In February, United States paper products manufacturing reported the second highest rate of growth in new orders out of all United States manufacturing industries. New orders are measured as part of the Institute for Supply Management Manufacturing Index.

Many consumer goods are now being served, wrapped up, or shipped in paper because it is more readily recyclable than plastic or polystyrene. Demand for paper cups is expected to grow by more than 3 billion cups, 2.7%, a year. International Paper currently has three cup facilities that together produce 1 billion cups per month. It is doubling the size of its Kenton, Ohio paper cup plant to increase production. Construction is expected to be complete in 2015.

People find that it is easier to recycle paper than plastic. In 2010, more than 70% of paper was recycled and less than 15% of plastic was recycled according to an Environmental Protection Agency study of municipal waste.

People are recycling more paper and cities are better equipped to recycle too. In 2012, more than 65% of paper was recovered for recycling according to the American Forest and Paper Association. This is up from less than 50% in 2002.

Every order at a fast-food restaurant is served in a single-use container: wrappers for sandwiches, bags for meals, and cups for drinks. As consumers have become more conscientious about where these containers come from and where they go when they are done with them, companies have had to do so too.

The U.S. was estimated to use about 108 billion disposable cups in 2013 according to the Technomic disposables study. About half of those cups were plastic or foam and half were made of paper.

Paper manufacturers are hoping to start capturing the 50% of the market that currently uses plastic or foam cups. Consumer preferences seem to be shifting demand towards paperboard. The McDonalds switch accounts for 14,000 United States restaurants that will soon be using paper cups. Dunkin’ Donuts now serves its small coffee orders in paper cups at 7,400 of its 7,677 US locations and uses plastic lined paper containers for all of its beverages in municipalities like Seattle and San Francisco that have banned polystyrene.

Bleached paperboard, used for food containers, and coated paperboard were the only product segments that MeadWestVaco saw increasing demand for in 2013.

This switch is not limited to disposable food containers. Retailers are using paper packaging to help market themselves as environmentally friendly companies. “Paper-based packaging is generally preferred for being practical, affordable, easy to use, earth-friendly, and versatile,” said Cathy Foley of the American Forest & Paper Association, in an article summarizing a recent report about the perception of paper packaging among the millennial generation.

Neenah Paper, which sells paper for high-end printing applications like labels, recently relaunched their environmentally friendly line of paper anticipating that it will be a growth area. The company promotes the paper saying that it is “inspired by today’s hand crafted, organic lifestyle.” These papers are made out of at least 30% recycled material and are certified by many sustainability organizations including the Forest Stewardship Council. Neenah Paper hopes that companies will want to use these papers in their packaging to give their products an environmentally sustainable image.

More than 95% of all products shipped within the United States are shipped in paper containers. While overall retail sales were up only 2.3% this December, online retail sales climbed 9.5%. Large boxes containing many units are used when goods are shipped to retail stores. When consumers buy online their orders use more packaging because they are shipped individually from the warehouse.

Over the last seven years International Paper has acquired $11 billion of containerboard manufacturers. These acquisitions are in line with expectations of continuing demand for paper shipping containers.

Non-durable goods drive about 85% of box demand, said Carol Roberts, International Paper’s chief financial officer, at a conference in February of this year. The production of non-durable goods has still not returned to the same level it was at in 2007, before the recession.

Packaging used for transporting goods softened as shipments declined because of this winter’s harsh weather.

Ken Waghorne, an analyst for the forest products research company RISI, expects that demand for paper goods will rise with the expected manufacturing and consumer spending increases over the warmer months.

International Paper’s revenue was more than $29 billion in 2013, up 4.5% from 2012 and more than 15% from their last revenue peak in 2004.